Business Simulation Exemplar – Cochlear Hearing Implants

Business Simulation – Competitive Environment

in Taiwan for Cochlear


Cochlear can enter this market fully not just on cost leadership and differentiation, but also help shape the industry in a relatively high income nation, already with an existing presence in the region, though minimal in Taiwan.  Following is, according to Porter’s five forces (Porter,1985), an overview of new competition, product substitution, buyer power, supplier power and existing competition aspects of the competitive environment for Cochlear.


Of the companies or potential competitors previously mentioned, they all could threaten with high levels of capital access, new product development potential, partnerships or acquisitions and close cultural ties with Taiwan, i.e. both the PRC China and Japanese companies.

On the other hand, Australia and Cochlear do have a profile in the region with quite a good product brand for quality, innovation and relationships with broad stakeholders.  This is complemented further by the Taiwan government having a broad biotechnology policy which could create opportunities for in country presence, research, cooperation or joint ventures (Biotech & Pharmaceutical Industries Program Office, 2016).


However, there is direct competition from Chinese private company Nurotron, with the single product the Venus Cochlear Implant System, with R&D in California and manufacturing in China (Nurotron, 2016).  Nurotron recently won one of the largest orders from the Chinese state to provide their budget or lower cost product through a state tender system, in which Cochlear was also competing (Bennett & Giancola, 2015).


Cochlear can lead on cost, product differentiation and quality without competition in the short and medium term, via their product suite which includes Cochlear Implants – Nucleus 6 System, Baha Bone Conduction Implant and further suite of Cochlear Acoustic Implants.


Due to the uniqueness and differentiation of products, for now, Cochlear has a significant advantage over potential new market entrants and existing providers, if they decided to enter the market, i.e. budget segment in Taiwan, with Cochlear still premium for performance segment.


While Nurotron etc. and Cochlear are competitors, including in China, Cochlear has had a near monopoly on high quality bionic hearing products, translating into continued high prices through most global markets. However, e.g. Nurotron is a clear threat for ‘product substitution’ in the budget market growing organically on population demographics of the Chinese mainland, potentially replicable elsewhere through cross subsidisation, partnership or acquisition (Bloomberg, 2013).


Cochlear may have to monitor over the short medium term signals from potential new market entrants, competitive products or substitutes and large players with access to capital able to undercut the market if and when they enter.  When the market has signalled a move to more competition and maturity, Cochlear will need to consider options to keep costs down, retain sufficient market share and profitability, with continued innovation e.g. joint ventures with local or other competition on budget products?


Ideally Cochlear will compete on differentiation through continued investment in innovation in the short to medium term rather than competing on cost with technically inferior products.


What strategies would you recommend?


If not competing on price or cost in a new market, but through investment in technical innovation according to the five forces (Porter, 1985), both new competition and potential product substitution needs to be monitored by Cochlear’s marketing with existing limited presence e.g. new entrants, potential innovations and market demand.  Further, as experienced in CompXM simulation environment the following elements of buyer power, supplier power and existing competition, can be leveraged at the expense of an incumbent or new entrant like Cochlear.


In short, a large competitor with global presence could potentially enter Taiwan with high performance products, moderate pricing and high customer satisfaction impacting Cochlear’s market share, sales and profitability.  Cochlear also needs to be wary of similar or related threat of product substitution by continuing to invest in innovation, for superior quality products, keeping a ‘step ahead’.


Cochlear will need to be aware of issues discussed previously, with focus upon the value chain (IMA Institute of Management Accountants, 1996), and if competition does emerge, value chain may need to be leveraged further to maintain market share and profitability, with focus upon the product life cycle (Klepper, 1996).  This would include marketing division and Cochlear’s networks remaining informed of Taiwan market, including ongoing feedback from direct and indirect customers, especially the need for improvements based upon customer satisfaction and forecasting of demand.


This also leads onto leveraging production and finance well where the former needs ongoing investment to increase automation and possibly increased plant capacity to lower costs, in a potentially more competitive price environment.  If this is to be achieved sales and profitability need to be maintained; in future outsourcing, joint ventures or purchases could be considered to ameliorate any long term rise in costs that may impact profitability.


There may need to be assumptions made e.g. move towards a mature and stable market with competition in future, medium or long term, however ageing population and longevity could maintain growth (Biotech & Pharmaceutical Industries Program Office, 2016).  Assuming innovation continues, financial focus will become more important, especially keeping costs within bounds that allow profitability and continuing to attract investment.  Cochlear may have to consider contingencies or alternatives if e.g. new competition enters, maturing market with slower growth and downward price pressure, may require production alternatives whether elsewhere or contracting out.


Summary of Strengths and Weaknesses


Cochlear’s strengths are high innovation, strong health medical research with global links, unique products, very good product differentiation, trusted brand, regional and global footprint, with limited presence in Taiwan.  Further importance is human capital, expert personnel with strong ethnic connection to proposed new market, experience of new market entry and higher education or research links.


However, regarding potential weaknesses, there is little previous direct experience of Taiwan, risk of focusing upon costs versus investing in innovation to maintain share price, securing and maintaining intellectual property rights, high expectations after much global and regional success; not forgetting the impact of silo mentality on divisions, plus potential cross cultural issues amongst personnel.  The latter aspect is important, whether R&D, marketing, production, finance or management with predominantly ‘Anglo-Celtic or ‘white Australian’ whilst divisions would no doubt include Australians of Chinese heritage from old Cantonese, through Singaporean, Malaysian and PRC China, plus Taiwanese.


Competitive Strategy through Porter’s Five Forces


For now, and in the short term, Cochlear can develop competitive strategy (Porter, 1985) based upon differentiation through a suite of innovative products being updated or introduced, and presently produced in both Australia and Sweden.  While Cochlear has a dominant global market share, high direct and indirect customer awareness with growth and innovative products, premium pricing should be possible in Taiwan as a middle income nation (Biotech & Pharmaceutical Industries Program Office, 2016).


Due to proximity of Taiwan and nature of the products, production and shipping costs may not be a very significant issue (with high automation levels), but this will probably change in future as Taiwan and other markets mature with more competition thus potentially slower growth (possibly offset by ageing population).  Australia, as happens now, would be the obvious choice for maintaining R&D and production base being same region, time zone, short air freight times and very strong human relationships whether social, research or business.  Further, if needed, Sweden can be a backup for supply, or leveraging contract manufacturing and health medical research expertise in Asia for outsourcing e.g. Singapore, Malaysia or Taiwan itself via subsidiaries or research institutes.


Market research and ongoing market intelligence will be essential for signals and information about actual and potential competitors or new entrants, while organic use of existing relationships and systems should allow monitoring of the situation, both quantitative and qualitative market research.  The importance of good forecasting cannot be ignored as any mismatch between actual and forecast demand can lead to either missed market opportunities or increased costs, especially if forced to outsource.  Conversely excess inventory should be avoided, although excess could be potentially transferred to other regions.  Cochlear’s existing limited presence in Taiwan bionic hearing devices could be leveraged to support ongoing market research and intelligence for expansion.


If and when new competition does emerge a risk would be product substitution, especially in budget sector where lower cost competitors could leverage their advantage, e.g. PRC China, on state tenders and contracts.  This may require more focus upon continuing innovation for premium priced niche products in tandem with cost cutting on budget, or co-operation with potential partners on budget production, whether joint venture or licensing.


With any new competition which generally has a global presence too allowing cross-subsidisation, there may be indirect pressure through buyers having other choices, both budget and performance, with potentially lower prices impacting profitability.  Again Cochlear may need to consider other options whether partnerships, licensing or other production options, to lower costs thus addressing both buyer and other supplier power.


Supplier power of both competitors and Cochlear can be minimised for the former and utilised by the latter.  Simple fact is that Cochlear is continually investing in R&D, innovation and new product releases with high awareness, commensurate reputation for quality, proximity to Taiwan and perception of Australia as a benign or friendly trading partner versus potential competitors or existing competition elsewhere from larger sometimes dominant nations i.e. PRC China, USA and Japan.


Focus upon the Value Chain


The important value chain process includes R&D, marketing, production and finance (IMA, 1996), along with elements of the product life cycle.  Again, these include earlier ease of entry, product choices and product development which then becomes slower with maturity, fewer product or competitor exits, less innovation and more focus upon production costs and retaining market share (Klepper, 1996).


R&D requires retention of strong links and investment into related research: in-house, education institutions and research centres, both Australia and target market(s), continually.  Again, this must include maintenance and leveraging of existing and new human capital through social, research and business links between Australia, Taiwan and region especially via Taiwan’s biotechnology strategy for R&D and investment (Biotech & Pharmaceutical Industries Program Office, 2016).


Marketing focus should be upon matching customer, intermediary and supplier needs, retail, corporate and state, complemented by dynamic, valid and reliable market research with more accurate forecasting. A significant element of marketing between Australia and the region, including Taiwan, are the perceptions of Australia e.g. innovation, quality, trust, proximity, awareness and ‘big face’ i.e. increased value of premium international products versus budget.  Again, Cochlear can use its very limited but existing client presence in Taiwan to ensure valid and reliable market research, especially qualitative for market intelligence.


Production needs higher automation required to keep costs down, avoidance of excess inventory, focus upon actual vs potential demand for better forecasting, adaptability and flexibility.  Presently Australian based production, due to products being highly sophisticated digital electronics, is done on campus at Macquarie University Sydney, accessing R&D, expertise and highly skilled operators.  If there are production issues based upon capacity and cost, other Asian subsidiaries could assist with outsourcing via science or research hubs such as Singapore, and Taiwan itself (Ibid.).


Finance strategy would be maintenance of a strong balance sheet helped by global market share and income, ensure financial KPIs are at optimal level and do not decline.  Cochlear has a proven reputation amongst international investment analysts for good management, strategy, increasing sales, profits, share price and dividend growth; with investment in R&D and innovation.  Investment and financing issues for local biotechnology companies has been highlighted in Taiwan which may create a niche for the likes of Cochlear to enter.  While looking to the future capacity and costs, more use could be made of production near or around existing Asian subsidiaries to take advantage of future regional growth, and Africa.


If Cochlear can focus on new market opportunities via these aforementioned strategies and with an added emphasis upon human capital, Taiwan can be both a new and significant long term market for bionic hearing implants.



The CAPSIM Global DNA and Comp-XM business simulations are practical virtual tools for development of inter-dependent company personnel in R&D, marketing, production and finance divisions; in addition to application of scenario planning, strategy and KPI feedback for main regional competitive markets.


In the first simulation Chester in Global DNA was a global niche differentiator for performance products in home market the Americas, in addition to Europe and Asia Pacific; resulting in a leading market position yet without dominating markets.  The simulation allowed focus upon KPIs including profitability, ability to raise capital, asset utilisation, forecasting, inventory management, customer satisfaction and competition; highlighting the inter-play between these and other variables.


Meanwhile the Comp-XM lower growth environment via Andrew’s was similar with two main products Able for budget and Acre for performance with strategy of lowering costs, higher automation, future organic growth, customer satisfaction and increased value.


Both simulations required focus upon customer satisfaction or buying criteria including price, age, ideal position and service life, with at least two products to cover both budget and performance; in addition to incremental changes or updates.  Comp-XM emphasised the need for cost control e.g. increased investment in automation, and addressing customer satisfaction through continued investment in R&D and product updates.


The Comp-XM market environment suggested need for higher specifications for both budget and performance, without increasing prices significantly, and in some cases decreasing prices to maintain or defend market share.  This was confirmed by unexpected events due to competition either entering and dominating market by lower prices, and conversely superior performance or technical specifications.  Final results were mixed due to the latter events, particularly sub-optimal finances, inaccurate forecasting of demand and meeting increased demands of customer satisfaction.


For Cochlear the simulations highlighted need for real world competitive strategy through understanding markets and competition to create profitability.  Importantly meeting or exceeding customer satisfaction requirements is essential through focusing upon and leveraging all divisions in the value chain.  The stress should be upon the product lifecycle exemplified by continued investment in R&D and innovation to keep abreast or ahead of the competition, without needing to even dominate the market to be profitable.


Cochlear can enter or expand significantly the Taiwanese market successfully by strategy addressing all the key elements of perpetual R&D along with marketing and market research, with commensurate adaptability in production, have sound finances to both control costs and attract further investment.  Like simulations are an opportunity to have divisional personnel experiment together on strategy and other divisions, it also suggests the need to have human resource strategies attracting personnel competent in key skills sets, both technical and soft.


  References & Bibliography


Advameg, Inc. (2016) Cochlear Ltd. – Company Profile, Information, Business Description, History, Background Information on Cochlear Ltd. Available from: (Accessed 27/7/16).

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Austrade, (2016) Industries – Export Markets – Taiwan – Market Profile. Available at: (Accessed 7/9/16).


Bennett & Giancola (2015) Nurotron Biotechnology Wins Tender.  Available at: (Accessed 28/7/16).


Bingham, R. & Drew, S. (1999) Key Work Skills, Aldershot/England: Gower.


Biotech & Pharmaceutical Industries Program Office (2016) Taiwan’s Biotech Industry Overview. Available at: (Accessed 7/9/16).


Bloomberg, (2013) Nurotron Annual Report. Available from: (Accessed 27/05/2016).


Comp-XM (2016) The Globe Report, Chicago, IL: Capsim Management Simulations.


Cochlear (2015) Cochlear Annual Report 2015 – Hearing Performance. Sydney: Cochlear.  Available from: (Accessed: 27/05/2016).


Economist Intelligence Unit (2016) Taiwan Healthcare.  Available at: (Accessed 7/9/16).


Global DNA (2016) The Globe Report, Chicago, IL: Capsim Management Simulations.


Gosenpud, J.; Miessing, P. & Milton, C. (1984) A Research Study on Strategic Decisions in a Business Simulation.  Developments in Business Simulation & Experiential Learning, Volume 11, 1984


Institute of Management Accountants IMA (1996) Value Chain Analysis for Assessing Competitive Advantage. Statements on Management Accounting. Practice of Management Accounting. Montvale N.J.: Institute of Management Accountants.


Investopedia (2016) Porter’s 5 Forces. Available at: (Accessed: 01/06/2016).


Keys, B. (1977) Review of Learning Research in Business Gaming. Computer Simulation and Learning Theory, Volume 3, 1977.


Klepper, S (1996) Entry, Exit, Growth, and Innovation over the Product Life Cycle. The American Economic Review. Vol. 86, No. 3 (Jun., 1996), pp. 562-583.


Malik, S. & Howard, B (1996) How Do We Know Where We Are Going If We Don’t Know Where We Have Been: A Review in Business Simulation Research. Developments in Business Simulation & Experiential Exercises, Volume 23, 1996


Porter, M. (1985) Competitive Advantage – Creating and Sustaining Superior Performance. New York: The Free Press.


Porter, M. (2000) How competitive forces shape strategy. Harvard Business Review. March-April 1979 pages 137-145


Shellman, S. & Turan, K. Do Simulations Enhance Student Learning? An Empirical Evaluation of an IR Simulation, Thematic Issue: Simulations in Political Science, Published online: 24 Feb 2007, pages 19-32 Journal of Political Science Education, Volume 2, Issue 1, 2006





Business Simulation – Strategic Management – Higher Education – Capsim

Business Simulation Capsim


Global DNA & Comp-XM – Company Exemplar – Cochlear Bionic Hearing Implants


Abstract or executive summary of a business simulation report presented to faculty in partial fulfilment of the requirements for the Master of Business Administration (International Business) at European University Business School & University of Roehampton.



Executive Summary


Cochlear Australia has potential to enter, create market share and be profitable in the Taiwanese market for bionic hearing implant devices; without need for dominating.  Taiwan has a state and private backed health sector, biotechnology strategy, middle income nation of 23.5 million, ageing population through improved longevity, almost all are insured and excellent relations with Australia.


Any successful strategy will be based upon research and development R&D, marketing, production and finance divisions; with commensurate excellence in human resources with strong focus upon innovation, differentiated products, customer satisfaction, forecasting, cost control and attracting further investment.


Through using two Capsim business simulations, Global DNA and Comp-XM, relevant and inter-dependent personnel can develop strategies, then apply and evaluate key performance indicators KPIs for testing the market, in addition to lessening the impact of silo mentality.  Simulation, risk free, exemplified the need for investment in innovation and automation to satisfy customers, good communication, forecasting and cost control for continued profitability.


Simulations showed the need for a suite of products for both budget and performance, while suggesting a trend towards moderate pricing to retain market share.  This was confirmed by impairment due to unexpected events including price cutting or dumping of competitor products, in addition to lagging on higher specifications on products and automation; both making forecasting of demand and sales difficult.  The lesson was never assume anything, especially market dominance or competitive share, and be constantly aware of the market, including awareness of other divisions.


The optimal strategy reflected the need for achieving customer satisfaction in both budget and performance segments through incremental improvements, investment in R&D, plant automation investment, leading onto cost control, profitability and then attracting continued investment through sound financial KPIs.


As markets mature the strategy is important, while understanding that organic profit growth is achievable even if population growth slows and market share remains static, as the population ages and suffers widespread age-related hearing impairment.


The first simulation Global DNA in a higher growth environment followed by the lower growth Comp-XM highlighted that markets may not continually grow thus precluding market domination and increased sales.


However, both simulations indicated that profitability could be maintained without dominating market share provided customer satisfaction was addressed with continual attracting of investment in R&D and product innovation, plant automation lowering costs and human resource development.


Cochlear could leverage such simulations further for both new or existing market strategy and planning, in addition to supporting the skills development of all relevant company personnel globally, thus achieving share and stakeholder objectives.